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Only 24% of top companies have risk management committees: Grant Thornton

Dec 8, 2014 11:30:12 PM / by Shanmugavel Sankaran
The report finds that 77% of banking and financial services sector companies having a risk-management committee
Only 24 of the top 100 Indian companies by market capitalization have formed risk management committees on their boards, according to the Governance Observer report from consulting firm Grant Thornton. While enterprise risk management was not mandatory according to the Companies Act of 1956, in the 2013 law, the board and audit committees have been vested with specific responsibilities in assessing risk management policies, process and systems.
The report finds that the banking and financial services (BFSI) sector is leading the way in having a risk management mechanism, with 77% of BFSI companies having a risk-management committee. However, none of the consumer goods companies and only 6% of real estate and infrastructure companies among the top 150 companies has these committees.
The size of the company has also influenced the formation of risk management committee, finds the report. About 36% of companies that have a turnover more than Rs.10,000 crore have a risk management committee, while only 5% of companies with less than Rs.2,500 turnover, have one. photo According to the 2013 Companies Act, the board of directors’ report must include a statement indicating development and implementation of a risk management policy for the company. The statement must also identify the elements of risk that may threaten the existence of the company. “Forming a committee shows how risk conscious a company is, and shows that it has the awareness of the actions it should take in case of risk,” said Harish H.V., partner, Grant Thornton India Llp. “But for most companies, risk management is a notional concept. It has to be institutionalized by laying a framework.” The report also showed that Indian corporates have as many as 52 related parties in each company, with real estate and infrastructure sector companies having double the number of related parties. With the increase in number of related parties, the number of related-party transactions could go up. Under the new Companies Act, related-party transactions need the approval of minority shareholders.
“With almost every related-party transaction going up for vote, it could impact the continuity of business, if shareholders vote against it,” said Harish, as seen in the case of Maruti Suzuki Ltd, which needs to seek minority shareholders’ nod for transfer of its Gujarat plant to its parent, Suzuki. “The auditing profession has to bear the increased burden in pursuit of the worthy cause of furthering the interest of the shareholders and other stakeholders. Related-party transactions and their assessment as transactions in the ordinary course of business, and at arm’s length, is only one of the many onerous tasks that auditors have to perform,” said M. Damodaran, a former chairman of Securities and Exchange Board of India (Sebi).

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Topics: fixnix, FixNix GRC, Governance, Grant Thornton, grc, incident management, Risk Management, asset management, audit management, BCM, Blog, compliance, policy management, risk

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